Why More Investors Are Donating Stock to Charity
By CHANA R. SCHOENBERGER, The Wall Street Journal
Updated Dec. 11, 2016 10:35 p.m. ET
As the stock market reaches new heights after the presidential election, more investors are looking at their portfolios to see which securities have gone up the most—and then donating them to charity.
“We’ve seen an uptick in charitable giving using appreciated stock,” says Paul Stark, a wealth and estate-planning strategist at SunTrust Banks Inc.
That uptick is being fueled by assumptions about what a Trump administration will do.
“With Trump being elected, there’s more certainty that tax rates will be lower” in the years ahead, Mr. Stark says. That means investors who donate appreciated stock before the end of December will be able to deduct their gift’s value from a 2016 tax bill that could be higher than their 2017 tax bill.
What’s more, the Trump campaign discussed changing the limits on itemized deductions, which could make charitable giving less valuable as a tax advantage in future years, says Adrienne Penta, a senior vice president at Brown Brothers Harriman in Boston. Currently, taxpayers typically can roll forward unused charitable deductions for five years. It’s unclear if that will change, she says.
For those looking for a tax break from a donation, “it’s almost always better to donate the stock rather than selling the stock and giving cash, in a taxable account,” says Russell Rivera, president of Voice Wealth Management in New York.
That’s because investors who sell appreciated stock held in a taxable account owe taxes on those gains. They would get a tax deduction for donating those proceeds, but it might not offset the tax bill from the share sale. If those investors instead donated appreciated stock, they would pay no taxes on the gains and get a tax deduction for the full market value of the shares.
If stock has lost value, it’s a different story. In that case, investors may want to sell the shares at a loss and donate the cash proceeds, since they could write off that loss against other capital gains.
‘With Trump being elected, there’s more certainty that tax rates will be lower. ’
One option for investors who aren’t sure about what organization to support with their donations is a donor-advised fund, an increasingly popular vehicle for making stock gifts. These funds allow an investor to set up an account for charitable giving and fund it with securities. Many asset-management companies, including Fidelity Investments, Vanguard Group and Charles Schwab, offer these funds.
For tax purposes, gifts to donor-advised funds count as a donation on the day the stock moves into the fund. But the investor doesn’t have to disburse the money to a charity until a later date of his or her choice, and can add more stock later on as well, Mr. Rivera says.
“When you’re making gifts for tax purposes, a donor-advised fund is a very helpful tool to allow a donor to make a gift in a short period of time, and then sort out on the back end, in 2017 or beyond, how exactly they want to distribute those funds to charity,” Ms. Penta says.
Just don’t wait until the last few days of the year to put your stock gift in motion, Mr. Stark says. It can take several days for the gift to work its way from your stockbroker to the charity’s account. If the charity doesn’t acknowledge the gift until 2017, that could cause problems with your taxes.